James Bateman, head of multi-manager and multi-asset portfolio management at Fidelity, says that an important consideration for investors at this time of year is whether they have the right balance of active and passive funds.
Using actively managed funds is usually the best policy in less researched areas, such as emerging markets and small caps. However, many fund of funds managers – such as FE Alpha Manager Toby Ricketts – say they prefer to use trackers in areas such as the US as it is difficult to find active managers who can add value in this market.
Bateman says that creating a portfolio of both active and passive funds is the best way to maximise profits after costs in the long-term.
"Adding actively managed funds could be a wise move for many savers looking to make the most of their money in new markets and changing economic conditions," he said.
"Don't forget that the benefits of even small amounts of outperformance compared to a passive strategy can add up to considerable differences in returns over 10 or more years."
"Active and passive strategies carry different risks, different costs and different benefits - which is why they can complement each other as part of a balanced portfolio and why investors must take the time to understand the pros and cons of each."
With this in mind, FE Trustnet looks at a selection of multi-asset portfolios that combine both actively managed funds and trackers.
M&G Episode Balanced
Patrick Connolly, head of communications at AWD Chase de Vere, is a big fan of M&G Episode Balanced, which he believes represents a cost-effective one-stop shop for diversification.
"Even though holding both active and tracker funds is a good approach, a lot of multi-asset managers don’t do it," he said.
"This is probably because they want to show off how clever they are and want to show they can choose good stockpicking managers."
"One of the funds we use is M&G Episode Balanced. It holds a fair number of passive funds and as it is part of the IMA Mixed Investment 20-60% Shares sector it has a high weighting to fixed income funds."
"If it had a greater exposure to actively managed equity funds, the higher charges would have had a knock-on effect on the portfolio's performance."
"The fund itself has 50 per cent in equities and 80 per cent of those are tracker funds. The manager – Juan Nevado – tries to drive returns via asset allocation."
The £323.6m M&G Episode Balanced was launched in February 2007.
It has returned 38.26 per cent since then while the IMA Mixed Investment 20-60% sector has made 17.42 per cent.
Performance of fund vs sector since February 2007
Source: FE Analytics
The fund’s top-10 holdings include actively managed portfolios such as M&G Recovery and M&G Global Leaders – plus trackers such as iShares FTSE 100, iShares MSCI Korea and iShares S&P 500.
The fund has a total expense ratio (TER) of 1.67 per cent – well below average for a fund of funds – and requires a minimum investment of £500.
Henderson Core Income range
Another choice for investors looking for a ready-diversified portfolio is the Henderson Core Income range.
The two funds – Henderson Core 3 Income and Henderson Core 5 Income – are both headed by FE Alpha Manager Bill McQuaker, who launched them in September 2012.
A spokesman from Henderson Global Investors said the fund only uses active funds when McQuaker believes the manager can add more value than a tracker – after costs.
"The portfolios have a core strategic positioning that matches the team’s global economic view," he said.
"The team believes, however, that returns can be potentially enhanced through tactical positioning. Therefore, valuation anomalies or market catalysts are identified that are likely to drive short-term returns."
"Passive funds, including those that track a market index such as the FTSE 100 or exchange traded funds (ETFs), are used to gain exposure to areas where they perceive opportunities exist."
"Actively managed funds are likely to be used only where performance or speciality merits selection."
Henderson Core 3 Income has 60 per cent exposure to bonds while Henderson Core 5 Income has 60 per cent in equities.
Both funds require a minimum investment of £1,000 and have an annual management charge of 1.2 per cent.
Fidelity Allocator range
For investors looking for a heavy bias towards passive funds, the Fidelity Allocator range is a good place to start.
The funds include Fidelity Allocator World, Fidelity Multi Asset Allocator Adventurous, Fidelity Multi Asset Allocator Defensive, Fidelity Multi Asset Allocator Growth and Fidelity Multi Asset Allocator Strategic.
All the funds require a minimum investment of £1,000 and have a TER ranging between 1.17 and 1.19 per cent.